TORONTO, Feb. 04, 2025 (GLOBE NEWSWIRE) -- Allied Properties Real Estate Investment Trust ("Allied") (TSX: "AP.UN") today announced results for its fourth quarter and year ended December 31, 2024. "Our occupied and leased area remained steady for the third consecutive quarter, and our urban workspace portfolio continued to outperform in terms of occupancy and rent growth in all urban submarkets other than Vancouver,” said Cecilia Williams, President & CEO. "With demand rising in our cities and across our three workspace formats, we expect to increase our occupied and leased area and propel rent growth over the course of 2025.”
Operations
Allied's portfolio is comprised of three urban workspace formats. Allied Heritage is a format created through the adaptive re-use of light industrial structures for office use above grade and retail use at grade. The buildings are inherently distinctive, clustered in the urban core and generally low-rise. Allied Modern is a format created specifically for office use. The buildings are generally mid- to high-rise, clustered in the urban core and distinctive by virtue of design, integration with heritage structure and/or integration with the different elements of mixed-use, amenity-rich urban neighbourhoods. Located primarily in Toronto, Allied Flex is a limited format for buildings that Allied intends to redevelop comprehensively within a five-to 10-year period. Because of the near-term transformation of these buildings, Allied can make workspace in them available profitably and on more flexible than normal terms for users.
Utilization of, and demand for, Allied's workspace continued to strengthen in the fourth quarter. In the Montréal, Calgary and Vancouver rental portfolios, demand for Allied Heritage was most pronounced. In the Toronto rental portfolio, demand was strong across all three formats.
Allied conducted 255 lease tours in its rental portfolio in the fourth quarter. Its occupied and leased area at the end of the quarter was 85.9% and 87.2%, respectively. Allied renewed 69% of the leases maturing in the quarter, much closer to its normal level of 70% to 75%.
Allied leased a total of 571,298 square feet of GLA in the fourth quarter, 527,978 square feet in its rental portfolio and 43,320 square feet in its development portfolio. Of the 527,978 square feet Allied leased in its rental portfolio, 84,724 square feet were vacant, 212,834 square feet were maturing in the quarter and 230,420 square feet were maturing after the quarter. 56,077 square feet of the vacant space leased in the quarter involved expansion by existing users, a long-standing trend in Allied's rental portfolio that appears to be regaining momentum.
Average in-place net rent per occupied square foot continued its steady improvement, ending the fourth quarter at $25.41. Allied continued to achieve rent increases on renewal in the fourth quarter (up 2.0% ending-to-starting base rent and up 5.9% average-to-average base rent).
2024 Acquisitions and Non-Core Property Sales
"We remain committed to our vision, mission and core strategy,” said Michael Emory, Founder & Executive Chair. "Given our confidence in the future of Canada's major cities, we'll continue to grow our business with a view to serving knowledge-based organizations ever more comprehensively and successfully over time.”
In 2024, Allied acquired three triple-A urban properties for $677 million -- 400 West Georgia Street in Vancouver, the remaining 50% interest in 19 Duncan Street in Toronto and an additional 16.7% interest in the residential component of TELUS Sky (now known as "Calgary House”), bringing its ownership to 50%. The aggregate acquisition price was below development and replacement cost.
- 400 West Georgia is comprised of 340,846 square feet of office GLA, 6,546 square feet of retail GLA and 163 underground parking stalls. The property is 82% leased to Deloitte, Apple, Northeastern University, Spaces, RBC, a local café and a local restaurant, all with a weighted-average lease term of 11 years. Completed in late 2023, the property is designated LEED Platinum.
- 19 Duncan is comprised of 149,230 square feet of office GLA, 3,570 square feet of retail GLA, 464 rental-residential units, related common areas and facilities, 25 underground commercial parking stalls and 106 underground residential parking stalls. The office component is fully leased to Thomson Reuters with a weighted-average lease term of 8.6 years. The lease-up of the residential component is underway and is expected to be completed in early 2026. With the office component completed in late 2023 and the residential component (known as "Toronto House”) to be completed shortly, the property is designed to, and applying for designation as, LEED Gold.
- Calgary House is comprised of 326 rental-residential units, related common areas and 176 underground parking stalls. The property is 91.8% leased. Completed in late 2020, the property is designated LEED Gold.
In Management's view, the temporary contraction in cashflow per unit resulting from the acquisition of 400 West Georgia and 19 Duncan represents an investment in the future, one that will drive earnings and value growth on completion of lease-up by 2026. Management is also of the view that the two properties are important in meaningfully augmenting the Allied Modern format in two of Canada's most important urban office markets.
2024 Balance-Sheet Management
By the end of 2024, Allied
(i) reduced the amount drawn on its $800 million unsecured revolving operating facility to nil, affording it considerable liquidity going into 2025,
(ii) reduced short-term, variable rate debt to $153 million, representing 3.5% of its total debt,
(iii) had a total debt ratio(1) of 41.7% and
(iv) had net debt as a multiple of annualized adjusted EBITDA(1) of 10.8x.
Allied is committed to maintaining and ultimately improving its access to the debt capital markets and will continue to manage its balance sheet accordingly.
Outlook
Allied is experiencing steady demand for urban workspace, urban rental-residential space and urban amenity space, as well as strong and quantifiable engagement among users of space in its portfolio generally. Management expects this to underpin growth in same-asset NOI(1) in 2025 of approximately 2%. With the higher overall interest cost flowing from the 2024 acquisitions, Management expects FFO(1) and AFFO(1) per unit to contract in 2025 by approximately 4%.
Allied's specific operating goals for year-end 2025 are as follows:
(i) to have reached occupied and leased area of at least 90%;
(ii) to have sold lower-yielding, non-core properties, primarily in Montréal, Calgary, Edmonton and Vancouver, for at least $300 million and at or above IFRS value, with allocation of proceeds to debt repayment;
(iii) to have fully monetized its loan receivable secured by 150 West Georgia Street in Vancouver with allocation of proceeds to debt repayment; and
(iv) to have net debt as a multiple of annualized adjusted EBITDA below 10x, despite an expected temporary increase in the first quarter of 2025.
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(1) This is a non-GAAP measure. FFO per unit and AFFO per unit exclude condominium-related items, financing prepayment costs, and the mark-to-market adjustment on unit-based compensation. Refer to the Non-GAAP Measures section below.
Financial Measures
The following tables summarize GAAP financial measures for the three months and years ended December 31, 2024, and 2023:
| For the three months ended December 31 | ||||||||||||
| (in thousands except for % amounts) | 2024 | 2023 | Change | % Change | ||||||||
| Continuing operations | ||||||||||||
| Rental revenue | $ | 155,120 | $ | 150,898 | $ | 4,222 | 2.8 | % | ||||
| Property operating costs | $ | (70,737 | ) | $ | (69,029 | ) | $ | (1,708 | ) | (2.5 | )% | |
| Operating income | $ | 84,383 | $ | 81,869 | $ | 2,514 | 3.1 | % | ||||
| Interest income | $ | 10,393 | $ | 18,749 | $ | (8,356 | ) | (44.6 | )% | |||
| Interest expense | $ | (31,743 | ) | $ | (30,265 | ) | $ | (1,478 | ) | (4.9 | )% | |
| General and administrative expenses (1) | $ | (8,374 | ) | $ | (6,729 | ) | $ | (1,645 | ) | (24.4 | )% | |
| Condominium marketing expenses | $ | (17 | ) | $ | (89 | ) | $ | 72 | 80.9 | % | ||
| Amortization of other assets | $ | (388 | ) | $ | (381 | ) | $ | (7 | ) | (1.8 | )% | |
| Transaction costs | $ | (1,586 | ) | $ | (167 | ) | $ | (1,419 | ) | (849.7 | )% | |
| Net income (loss) from joint venture | $ | 105 | $ | (14,131 | ) | $ | 14,236 | 100.7 | % | |||
| Fair value loss on investment properties and investment properties held for sale | $ | (346,035 | ) | $ | (494,571 | ) | $ | 148,536 | 30.0 | % | ||
| Fair value gain (loss) on Exchangeable LP Units | $ | 36,254 | $ | (26,571 | ) | $ | 62,825 | 236.4 | % | |||
| Fair value loss on derivative instruments | $ | (644 | ) | $ | (27,054 | ) | $ | 26,410 | 97.6 | % | ||
| Net loss and comprehensive loss from continuing operations | $ | (257,652 | ) | $ | (499,340 | ) | $ | 241,688 | 48.4 | % | ||
| Net loss and comprehensive loss from discontinued operations | $ | - | $ | - | $ | - | - | % | ||||
| Net loss and comprehensive loss | $ | (257,652 | ) | $ | (499,340 | ) | $ | 241,688 | 48.4 | % | ||
| For the year ended December 31 | ||||||||||||
| (in thousands except for % amounts) | 2024 | 2023 | Change | % Change | ||||||||
| Continuing operations | ||||||||||||
| Rental revenue | $ | 592,040 | $ | 563,980 | $ | 28,060 | 5.0 | % | ||||
| Property operating costs | $ | (263,566 | ) | $ | (246,949 | ) | $ | (16,617 | ) | (6.7 | )% | |
| Operating income | $ | 328,474 | $ | 317,031 | $ | 11,443 | 3.6 | % | ||||
| Interest income | $ | 45,069 | $ | 53,605 | $ | (8,536 | ) | (15.9 | )% | |||
| Interest expense | $ | (116,467 | ) | $ | (107,073 | ) | $ | (9,394 | ) | (8.8 | )% | |
| General and administrative expenses (1) | $ | (24,333 | ) | $ | (23,577 | ) | $ | (756 | ) | (3.2 | )% | |
| Condominium marketing expenses | $ | (134 | ) | $ | (538 | ) | $ | 404 | 75.1 | % | ||
| Amortization of other assets | $ | (1,538 | ) | $ | (1,499 | ) | $ | (39 | ) | (2.6 | )% | |
| Transaction costs | $ | (1,722 | ) | $ | (167 | ) | $ | (1,555 | ) | (931.1 | )% | |
| Net income (loss) from joint venture | $ | 1,842 | $ | (15,622 | ) | $ | 17,464 | 111.8 | % | |||
| Fair value loss on investment properties and investment properties held for sale | $ | (557,569 | ) | $ | (772,652 | ) | $ | 215,083 | 27.8 | % | ||
| Fair value gain on Exchangeable LP Units | $ | 35,782 | $ | 28,696 | $ | 7,086 | 24.7 | % | ||||
| Fair value loss on derivative instruments | $ | (13,675 | ) | $ | (8,535 | ) | $ | (5,140 | ) | (60.2 | )% | |
| Impairment of residential inventory | $ | (38,259 | ) | $ | (15,376 | ) | $ | (22,883 | ) | (148.8 | )% | |
| Net loss and comprehensive loss from continuing operations | $ | (342,530 | ) | $ | (545,707 | ) | $ | 203,177 | 37.2 | % | ||
| Net income and comprehensive income from discontinued operations | $ | - | $ | 124,991 | $ | (124,991 | ) | (100.0 | )% | |||
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